Clinton says peace talks must include future of Jerusalem

US Secretary of State Hillary Clinton has said Jerusalem must be on the agenda for peace talks, denying Palestinian claims that Washington's policy on Israeli settlement activity has changed.

AFP - Middle East peace talks must include the disputed city of Jerusalem, US Secretary of State Hillary Clinton said in Cairo on Wednesday, stressing Washington is determined to push for a Palestinian state.

"There is no doubt that moving toward a state that reflects the aspirations and the rights of the Palestinian people must include all of the issues that have been discussed and mentioned by President (Barack) Obama, and that includes Jerusalem," she said.

"We want to assure you that our goal is a real state, with a real sovereignty," she added at a joint press conference with Egyptian Foreign Minister Ahmed Abul Gheit.

"Nothing can interfere with our commitment and our resolve to move forward, and there are impediments, yes, but we cannot let anything deter us," she said.

Clinton extended a regional trip at the last minute to meet Mubarak after creating a storm by praising an Israeli plan to restrict settlement construction on the occupied West Bank.

The secretary of state said on Wednesday that the settlements were illegitimate but again described the plan as "unprecedented."

"Our policy on settlement activity has not changed. We do not accept the legitimacy," she said, adding that the Israeli offer, which would allow a limited expansion of the settlements, was "not what we prefer."

But "what we have received from the Israelis ... is unprecedented," she said. "It's a positive movement ... just like the Palestinians made progress on security," she said.

The settlements in the West Bank and annexed east Jerusalem, which Israel seized in the 1967 war with its Arab neighbours, are home to nearly 500,000 Israelis and are considered illegal by the international community.

Arab officials have accused the Obama administration of reneging on its call earlier this year for a complete end to settlement building and said Clinton's clarifications did not go far enough.

Abul Gheit, who had said Cairo wanted Clinton to clarify her remarks on the settlements during her visit, described his and Mubarak's meetings with her as "very useful."

He blamed Israel for stalling the peace process but appeared to suggest a softening of Egyptian support of the Palestinians' refusal to resume talks in the absence of a settlement freeze.

"Israel is putting conditions to start negotiations by continuing to hold on to settlement activity," the foreign minister told reporters.

"We should focus on the end of the road and not lose the issue by holding on to this or that as a precondition for negotiations," he said.

Egypt has called for US guarantees to assure the Palestinians that the negotiations would be meaningful.

Cairo is mediating a unity deal between Western-backed Palestinian president Mahmud Abbas's Fatah party in the West Bank and the Islamist Hamas movement, which seized the Gaza Strip in 2007.

Clinton's comments on the settlements appeared to place the onus on Abbas for the success of the US efforts.

But Abbas, who negotiated with Israeli Prime Minister Benjamin Netanyahu's predecessor Ehud Olmert in the absence of a settlement freeze, can not afford to be seen as backing down from his conditions.

He suffered withering criticism from Hamas and his own party last month after endorsing the delay of a UN vote on a report which accused Israel of war crimes during its Gaza offensive last December-January.